The Prophet of No Profit

The Prophet of No Profit

Amazon earnings: How Jeff Bezos gets investors to believe in him.

By Matthew Yglesias at Slate

Excerpt:

Recent commentary has tended to draw a contrast between the company’s rising share price and waning profits. “The company barely ekes out a profit, spends a fortune on expansion and free shipping and is famously opaque about its business operations,” wrote Meaghan Clark and Angelo Young in the International Business Times in December, “yet investors continue to pour into the stock, pushing up the company’s share price to $388, a nearly 400 percent rise since the end of the company’s third quarter in September 2008.”

This image of a firm that remains a darling of Wall Street despite a lack of profitability is tempting. But the truth is more likely the opposite. Amazon doesn’t turn a profit because it’s a darling of Wall Street.

I once characterized Amazon as a “charitable institution being run by elements of the investment community for the benefit of consumers.” Bezos took issue with this in a letter to shareholders. His argument is that Amazon isn’t a charity; it’s a business—a business whose strategy is to make its customers as happy as possible. And that, fundamentally, is what makes Amazon great. Profits are in severe tension with the idea of pleasing customers—a profitable firm is, by definition, charging customers more than it needs to.

But of course, there’s a reason that most companies try to make healthy profit margins: financial markets demand it. Only a Wall Street darling, a firm whose senior leadership has the confidence of markets, could get away with being as daring as Amazon is.